Bitcoin Principles

So that's what Bitcoin means to me, right? It is a rational foundation for economics for the human race.

This is Stefan Lavera podcast.

A show about Bitcoin and Austrian economics brought to you by swan.com.

Today rejoining me is Michael Sala.

He is the executive chairman and founder of micro strategy known for being a big Bitcoin advocate.

And today we're talking about Bitcoin principles and Michael's view on this.

We maybe zoom out a little bit from some of the controversies of the day and really look at things on a longer term time horizon.

What does that mean for Bitcoin and what are the ways to assess Bitcoin's value proposition and what kind of changes should be made to Bitcoin if any at all.

So I'm hoping you will enjoy this discussion with Michael.

Michael, welcome back to the show and congratulations on surviving the bear market.

Yeah, thanks for having me. We all survived together.

Well, yeah, I think it's great to see, you know, obviously a lot of people can very easily get shaken out.

And it was great to see that you're huddled on and you're stacking all the way through.

So that's great to see. And today we're going to be chatting a little bit about this idea of Bitcoin principles.

And so do you want to just set some of the context like why are we talking about this now and what are we hoping to achieve here?

You know, I thought it was a pretty useful conversation to have because there's always a lot of back and forth on X slash Twitter about is this good for Bitcoin.

Is this bad for Bitcoin? There's there's very colorful conversations about protocol proposals about software proposals about developer initiatives about applications.

The latest is, you know, all the debate around ordnals and descriptions, BRC 20 tokens, but you've always got.

Covenants and drive chains and and, you know, if we look back, right, probably the most formative period in the history of Bitcoin was the block size wars and that really did.

It did define the network and define Bitcoin in a very strong fashion, but I think that if we look forward another decade or two or three.

And certainly over the course of 100 years, there are going to be more and more of these issues that will pop up.

There'll be more constituents that will get involved in the discussion.

And I don't really think having a debate and 240 characters or less on Twitter is terribly constructive for, you know, a topic which requires a lot of nuance and subtlety.

And I also think that it's important to be principles based in the way we discuss these things.

I think if we all focus upon what are our assumptions, what are our principles, then I think there'll be less confrontational and less combative and more constructive right in the community.

So I thought it would be useful to have kind of a constructive dialogue about Bitcoin philosophy, Bitcoin principles, frameworks of analysis.

So there is a basis for whatever comes next.

Right. And as you point out, I think the block size wars of 2015, 16, 17 were sort of a battle for the soul of Bitcoin.

And maybe some people have discussed about, you know, what really is Bitcoin? What are we doing here? And, you know, what kind of changes are acceptable?

And I guess people can disagree on what kinds of changes there. Like as an example, some people might say, it proved that the block size should never increase.

And other people might say, no, actually it's more like not now, not in this way and maybe in the future, you know, and that's just one example on the block size.

So let's talk a little bit. I think we'll bring it to this idea of Bitcoin as a protocol. And so do you want to just spell out some of your thoughts there?

Like what if we're thinking about the Bitcoin protocol and what are the pieces of that that should remain, right? What are those fundamental pieces that must remain?

Yeah, I mean, I would hate for someone to define me based upon one tweet response on one issue or six response on six issues.

I think that when we all start to understand each other's principles and philosophies and how we think about these things, I think it lays the framework for us to come to agreement or at least a constructive, cheerful consensus.

So, you know, starting with the basic on Bitcoin, and this is my, this is how I view it, right? Everybody has the ability and has the right to view Bitcoin through their own lens and they have their own, their own view of what is it, what is it for and why are they attracted to it?

So, I'm not here to tell everybody else what to think. I'm here just to articulate one view of Bitcoin that I have that I've formed over the course of my life.

So I'd start with this observation. I'd say Bitcoin, it's an asset circulating on a network governed by a protocol based on or rooted in an ideology.

And it provides humanity with a rational scientifically sound economic foundation for the first time. So that that's what Bitcoin means to me, right? It is a rational foundation for economics for the human race.

And you know, Bitcoin with a small B is the asset and we've created a digital asset and we did it with protocol and the assets no value, it is of no value unless there's a network for it to circulate on.

So when I think about the protocol, this is the way I look at it. I think Bitcoin, it has three core protocols that are critical to the entire system working.

The first protocol is a monetary protocol. The second protocol is a transaction protocol. And the third protocol is what I'm going to call a power protocol. It's sort of it's near term real time security.

It's not security of the network over 100 years, but it's security over the network over 100 days or 100 minutes. It's they're here and now. So that's based on power. Who has the power over the network?

So when I think about Bitcoin in general, well, there's lots of Bitcoin nodes and Bitcoin applications out to anybody can create a version of Bitcoin that runs on an iPhone and Android phone. It runs on Linux, it runs on a different type of computer, etc.

For them to be part of the network, they kind of have to share these three protocols. They're going to differ in lots of other functions, right? There are other aspects of software. For example, compatibility is compatible with this version of Unix.

There's usability, right? Does it run on the iOS and does it support like, you know, touch or not? You know, there's compliance. The version of Bitcoin wallet that runs in the United States, you know, by a publicly traded company.

You know, we'll have KYC AML restrictions for the state of New York, which will be dictated by New York and by the US. So there's there's differences in the software that have to do with compliance.

There's going to be security differences and these this is cyber security. So there will be lots of Bitcoin nodes and they will all be different in different countries and different jurisdictions for different platforms.

But the thing they all have to share in common is this common monetary protocol transaction protocol and power protocol. So the monetary protocol is the asymptotically approaching 21 million, right? There will never be more than 21 million.

And there's a lot of there's been a lot of focus upon, you know, the blocks of 50 and then 25 and then 12 and a half and 6.25 and the halvings, etc. But the truth is, I think about this not over the course of 10 years or the last 10 years.

I might even show the last 10 or 15 years matter, right? We're approaching the 15 year anniversary. But for the sake of our discussion, let's just say I accept Bitcoin as it is today, you know, through all of its twists and turns, the block size wars, you know, etc.

And I look out over the next 100 years is my short time frame and a thousand years is a reasonable time frame. So I'm looking at this as is this a rational scientific economic framework for the human race for the next many, many centuries.

And when you look at it like that, it's very clarifying and it's simplifying. For example, once you look out, you know, a thousand years, you're like, well, what is the monetary policy? It's 21 million. It's 21 million Bitcoin is the most it's ever going to be and some of them will be lost.

And that's the only thing you really need to understand about that someone wants to create a software programmer know that has a different policy than 21 million, they're breaking Bitcoin, right? They've corrupted the monetary protocol.

And of course, you can have infinite monetary protocols. You could have 5% inflation a year. You could have 5 million doge coin a year. You could have all sorts of things if you wanted.

You can create a crypto asset or a digital commodity that has a monetary protocol, which is inflationary or inflationary for 100 years and stops, right? All sorts of things.

But in this particular case, Bitcoin's monetary protocol has gotten to be very simple. We're around 19 and a half million Bitcoin, but we're going to cap out a 21 million.

So the truth is to debate all of the nuances of how you get to 21 million is almost like second or third order at this point. Maybe it was second order for the last four years. It's becoming third order.

It certainly is less than third order by 2035 when 99% of all the Bitcoin has been issued and you've got 1% to be issued over the next 100 plus years. You realize that 1% is divided by 100 years is pretty demand.

So the monetary protocol is a hard cap scarcity. The transaction protocol is the four megabyte blocks every 10 minutes, which works out to max. You're going to get to seven transactions a second or 7,000, 4,500 transactions in a block is pretty packed.

So when you work back into it, you think, well, like a slow network is 100 million transactions a year and a fast, full network is 200 million transactions a year. And the bandwidth is scarce, right?

And the transaction protocol changed a little bit more over the last 15 years than the monetary protocol. The monetary protocol is pretty much pristine since Satoshi defined it.

The transaction protocol jerked a little bit or adjusted with Segwit and Taproot adjusted because they changed the theoretical bandwidth and the theoretical nature of transactions. What kind of transactions will the network process and how much bandwidth can it process?

The third protocol is the power protocol. And in this particular case, it's not electrical power. It's computing power, but what kind of computer power digital power? You can define also what's a power protocols to control a network. For example, democracy is a protocol, one person, one vote, you know, aristocracy, one rich family, one vote. Yeah, violence, one gun, one bullet, one vote.

Right? The world's full of power protocols that, you know, the deer with the antlers have their power protocol.

The power protocol for the Bitcoin network is shot to 56 hashing, right? And it could have been any other, right? Could be a proof of stake protocol. It could be all sorts of all sorts of other interesting power protocols.

But the question is, who at the end of the day gets to create the block every 10 minutes? And what kind of power do they have to project in order to create the block? And, you know, if I, if I had an algorithm, which was a CPU friendly algorithm, right?

It's a non GPU, a non asick friendly CPU. Well, then, um, then you're allowing any general purpose computer to participate and generate that computing power.

If you had an algorithm that didn't include computing power at all, it's just electricity. But of course, electricity isn't terribly scarce. And computing power isn't terribly scarce.

So the idea of Shaw 256 hashing creates a very unique digital power protocol. It's something where you can create custom silicon. So you have custom asics that are generating lots of Shaw 256 hashes. And now we just cross 500X a hash.

That's a lot of power. But what's what's really critical, I think, about the power protocol is that allows you to construct a silicon machine with a massive mechanical advantage, like a custom asick custom silicon gives you a thousand X or 2000 X advantage over general purpose CPU.

And what that means is that what we have here is that three interacting protocols, which create four types of scarcity. The first level of scarcity is asset scarcity.

The second level of scarcity is bandwidth scarcity. There's a third type of scarcity, which is power scarcity.

Shaw 256 hashes are a very scarce form of power. And they can only be created by Bitcoin mining equipment. And so there's a fourth type of scarcity, which is technical scarcity, technology scarcity.

The ability to design, you know, a high performance semiconductor chip that does Shaw 256 hashing, right, what bit main has as a core competency, right, if you can create that. So in order to guarantee the asset scarcity, you have to have bandwidth scarcity.

And in order to guarantee the bandwidth scarcity, you have to have power scarcity. And in order to guarantee the power scarcity, you need technology scarcity. And so you're really looking at like four harmonics or, you know, four types of scarcity.

And they come together and they create a they create a network that has integrity and efficiency, right, I need I need the efficiency like like what's efficient.

Here's an efficient power protocol. I have a gun and in a room with a hundred other people, one person with a gun that costs $300.

And now, you can imagine now you've got 20 people punching 30 other people right now, now the outcome becomes very ineffective.

And the other power protocol is I'm a secure the billion dollars with a hundred million dollars of staked money. You can see that the issue with that is an estate economy. I have to actually allocate 10 or 20% of the capital to protect the rest of the capital. That doesn't scale very well.

So when you actually get to the point where you're creating machines, whether it's a construction crane or whether it's gone or whether it's a semiconductor chip, you have you have inserted know how in order to channel energy in order to actually exert power.

And when I talk about you know scarcity of power, well, the Bitcoin miners own all the shot 56 a sick chips. So you know, on any given day, if every power company or electricity company in the world wakes up and decides to attack the Bitcoin network, they can't really do it because the computing power, the digital power is scarce and they don't have it.

And any government wants to attack the network, they can't do it because they don't have the power. The actual silicon machine is in the hands of the network operators.

So that creates a certain type of efficiency and stability. And you can't really build a civilization without it. I mean, it's the same kind of efficiency you get when you build a dam, right, you, you dam a lake and all of a sudden you're generating hydro power.

Or the same efficiency you get when you have a construction crane and 150 pound person can lift 20 tons in the air, a thousand feet, right. It's clear you're not going to do it without having a machine.

So I look at the entire network. And I think it's a pretty beautiful set of integrated protocols.

Because the power protocol protects the transactions every 10 minutes. And the transactional protocol is a market driven protocol where people are bidding to put their transactions into the block space.

So as the ecosystem grows, the bid for transactions grows in a classic market economy fashion.

And what you have is Austrian economics dictating which transactions will get implemented based upon subjective value of all the participants in the ecosystem.

The miners over the course of a thousand years, it's quite obvious, right. The miners were paid by transaction fees. The the block rewards were a bootstrap or an initial subsidy in the first 20 years of the network.

But as far as I can see by the year 2035, the block rewards just look de minimis one per you know, so 1% of all the Bitcoin comes out of over 100 years after that.

So block rewards don't really matter. They fall away over the long time toward infinity. What matters is is transaction revenues.

And over time, I think we can expect the transaction revenues will grow to far outstrip the block rewards. And then if you look at Bitcoin miners, they're really Bitcoin power producers or digital power centers that are defending the network.

They're the first line of defense in the network in the sense that anybody that wants to hack or interrupt the blocks in the next 10 minutes, they have to get through that hash wall.

They're also the second line of defense of the network because the Bitcoin miners all have invested millions or tens of millions or 100 millions or billions of capital that they can't recoup and less than four to eight years.

And perhaps long or some cases, because they have to recoup their capital investment, they form corporate entities in every single nation state and every jurisdiction.

And then they become active, engage lobbyist for pro Bitcoin policies everywhere on earth where they operate.

So you really could think of the Bitcoin miners, you know, kind of as all of the citadels on the wall that are defending what is Bitcoin and they are in essence the defense, the defense arm of Bitcoin in the short term in the midterm.

So that being the case, once you adapt, accept the fact that you've got these three protocols and then you you ask yourself, well, how should I look at the network and proposals to change the protocols? Well, I think there are a lot of models you can adopt.

You know, one is the New York model. The New York model is New York City is sitting on top of granite for 200 million years. So Bitcoin is the granite Bitcoin is 21 million blocks of granite underneath New York City.

Now over the course of thousands of years, you've got different nation states. You had a hundred Indian tribes. Then you had the Dutch, then you had the British, then you had the New York colony, then you had, you know, the United States and a thousand years from now.

You may have another nation state on Manhattan. But here's what changes, right? The granite doesn't change, but the roads and the sewers and the city layout changes and the parks change and the buildings change and the people come and go and the politicians come and go and the rules and the political regimes come and go and the businesses come and go and customs and fads come and go and move.

And those are all the things that you can build on the island of Manhattan because you have the granite. And so if you look at it that way, you start to think, well, Bitcoin is the later one. It's the granite.

What's important is I know I need to know it's going to be here in a million years. That's why you know, at the very least I build a building I need to know it's going to be here in a hundred years.

But if you told someone, you know, my building's good for a hundred years. Well, 50 years from now they're not going to want to buy the building from you. You really want to know the building, the land that the building is built on is good for a thousand years.

If I if I forecast a sinkhole in the middle of an acre of manhattan in 37 years, it wrecks havoc with the economy, you know, in that jurisdiction.

So it's very important that you have that kind of of outlook and stability. The layer two is the layer three is the layer fours and the layer five is in the layer sixes.

Can all have very high frequency evolution. And there's not that much to risk whether lightning and open permissionless layer two will compete with other open permissionless layer two's.

You can have competition. We don't have to agree on which one is the right one. You can have layer three's. You can have Bitcoin moving from cash app to coin base, you know, across somebody else's mobile app and the layer three's can come and go.

You can have layer fours and layer five's applications and services and derivatives. You know, you can have this this ETF and it can be replaced by that ETF. They can come and go as well.

And then there'll be people that will actually create derivatives of derivatives. I've got an ETF. I trade options on it. And then I create an ETF to trade the options on the ETF.

And you know, you could think, well, these are stupid things, right? And maybe they are right art in New York City will come and go the art of 1700 is different than the arts of 1000 BC is different than the art of 2000 AD.

I mean, they'll change all these things. So if you look at Bitcoin, you know, all these things on the Bitcoin base layer, whether it's art or property or applications or or lightning channels and layer two, all of these things are going to change with what's going to look like a very high frequency.

If you were a creature and your lifespan was 10,000 years, think about how you would perceive Bitcoin and all these things that people are doing on Twitter and talking about and developing.

You know, you would blank every 10 years and then another 10 years go by and your view would be very different. And in that particular case, you would have a good feeling of granted underneath Manhattan.

Everything else would change. And then you would think these mirror mortals are debating, you know, this and that like grammar see park.

The use of it. Yeah, that's been significant for a hundred years, but over a thousand years and significant. And so I think that the New York model is kind of helpful.

I think that if you take another view of a protocol that's helpful, you know, Bitcoin is our universal economic rational economic protocol. Well, English, math, fire, electricity and gold.

Those are five other protocols. English is a protocol that, you know, has been around about a thousand years. It's changed a bit. You know, there's a lot of debates. But for example, there are certain things you can't say.

And with the English language in certain countries. And yet we speak English, right? So you're three year old probably can't use the English language the way you use the English language. And if you were in a court, you wouldn't use the English language the same way.

And if you were in a foreign country, you know, you might not use the language the same way. So the protocol will be used many different ways. But at the end of the day, the threat to the protocol is is to redefine the word good to be bad.

And redefine the word bad to be good. And that starts to create chaos, right? And I think, you know, if you look at math, it's a similar thing like base 10 math is a very specific protocol. We didn't always have it.

The way that we use math and certainly base 10 math isn't isn't that old. But it's used across nationalities. Good people use it, evil people use it, people debate how to use it. Some people are really good at using it.

Some people are awful at using it. And yet, and yet the protocol contributes something of value to the human race and civilization benefits from having that protocol.

I think that, you know, fire is the same thing. I mean, you're not going to let eight year old use fire the way that you would let an aeronautical engineer use fire or the way you would let, you know, even your campfire instructor, you know, or your survival training instructor.

So they're all different and gold gold is a monetary protocol formed over thousands of years, you know, and it was used across lots of different different nations and lots of different cultures.

Some nations use it better than others, right? The Aztecs, the Enkas didn't use gold so much as a monetary protocol. The Spaniards did. They thought they were winning when they used it. They had lots of chaos.

And the way that they used it, there are people that have used the protocol effectively. But there are ways that, you know, the protocol has been twisted.

I think the one the one takeaway from all of this though is, is these protocols are much more powerful to the extent that you believe they'll maintain their integrity over long periods of time.

And at the point that people start to lose faith in the protocol, if if if the number two means four and the number four means eight, think about the chaos.

Like think about how many machines and how many computer programs break if someone redefines four to be two or plus to be minus or certain rules, right?

And I think when Bitcoin is seen as that as that long term protocol, we can create economic machines and there's this debate in the community.

But most of the community debate is is Bitcoin developers that actually want to change the one that want to change the core protocols.

They have ideas for how to make it more functional, more, more, more performance. But really, I think that Bitcoin is already offered us the ability to create a hundred trillion dollar economy without changing any of the protocol.

And you have this interesting trade off, which is the more you screw with the underlying protocol, the more you interfere with the rest of the economy and all of, you know, layer two, layer three, layer four, layer five.

So let me change some of it to one other point, which is, I think there's a lot of debate because of people's vision of what Bitcoin should be.

For example, cryptocurrency has saddled the entire industry with so much baggage because if you believe that Bitcoin is a digital currency, you immediately put yourself in opposition to nation states, banks, political currencies, governments, laws, etc.

And you're by necessity a rebel because to be able to use Bitcoin's currency, you have to actively break laws or topple regimes.

And that's a very combative view of the world. If you actually conceptualize Bitcoin as property, you know, or money, if money is collateral to back the currency, then you actually have a very peaceful resolution of this problem.

I'm going to hold my money as a store of wealth and Bitcoin competes with property or gold as a store of wealth or compete with stock portfolios as a store of wealth.

And I'm going to make that my savings account or my savings portfolio. And then my checking account, my medium of exchange is going to be the currency dictated by the regime where I live, whether it's Venezuela, or Argentina, or the US, or China, or Europe.

And when you just divide those two and you say Bitcoin is money, but is not currency, then all of a sudden you realize that you're competing against other stores of value.

And really your crusade every day is to convince people to store their wealth and Bitcoin instead of art, real estate, gold, S&P, indexes, bond funds, etc.

And you can have a completely neutral view toward tax law, legal tender, political laws, customs, tariffs, capital controls, price controls, trade controls, wars, ideologies, religions, right, politicians, right, the entire work.

So I definitely think it's so much more constructive to think of it as property than currency. And I think the twist there is if I take property and I make it fungible and liquid, then it really is money and it's capital, right.

So if you think of Bitcoin as digital capital, digital money, or digital property, held for the long term as collateral against a local currency.

And then you say, as the citizen of the world, I'm going to swap into whatever currency I need to spend wherever I am, then you've found a peaceful resolution to the question of, do we have, do we have to be martyrs or can we be winners?

And I've said a lot, I'd rather be a winner than a martyr. And I, instead of saying, we have to use Bitcoin as a currency and therefore you have to repeal all your tax laws and change your legal tender laws.

Much easier to say, we're going to use it as money or as a property and then we will move peacefully and in a compliant fashion through every single regime. And then we're going to convert every company, every government, every politician, every institution into Bitcoin supporters because it's not inconsistent with their world view either.

Everybody would like to store their value forever. I think, you know, the future, if you look at the future, the future contains property, art, money, currency, equity, and credit.

All those things are going to exist. There will be, there's currently a hundred million companies, as long as there are a hundred million companies, there's going to be equity in the companies, whether it's Apple stock or Amazon stock.

And there are always going to be companies because if you look at economics, it's always going to be more efficient for a certain group of people to do something for you than for you to do it yourself.

If you roll the clock back to say, you know, 14th century Florence, you know, and the textile industry, they need like 36 different specialists with 36 different machines just to weave a piece of cloth.

So the good old days of we're just going to do everything ourselves, you know, on a homestead, they never existed. I think, I think that, you know, I read the other day about finding a ax factory, a stone ax factory that's more than a million years old.

You know, they find this like neolithic, you know, paleolithic, whatever ax factory, and there's hundreds of axes in the ax factory. And what that's telling you is a million years ago, a bunch of human beings organized a society that was sophisticated enough that they could dedicate one group of the society to do nothing other than create stone axes and trade those stone axes for food, clothing, shooting.

Clothing, shelter, services, etc. So there's never been a time in human history when people weren't specialized.

We're going to have companies and if you're going to have companies, you're going to have equity. The question is, do we monetize the equity or does the equity trade at its fair value based upon the cash flows that the corporation can generate?

And credit is not going away. You cannot like bonds, but in the day, you know, you're always going to want to be able to borrow some money from somebody. A company will want to be able to borrow money. Governments will borrow money and there will be creditors that will want to loan the money.

And the real issue is, will it be a fair cost to capital? Will I get a fair rate for the money or not?

And, you know, currencies will exist as long as there are governments, right? And when nation states break down and there's anarchy, then you resort to stone age barter and maybe you barter gold and maybe you barter food and maybe you barter bullets or maybe you'll barter Bitcoin as the most, you know, tradeable money in the future.

But in the day, you know, you don't really want to live in a war zone because, you know, if you study the history of war zones, the 30 years war in Germany, what it's done, one third of the people are dead on the battlefield, you know, and everybody has lost everything and civility has been ripped down to zero.

It's not, you know, a desirable situation. So human beings are generally going to run from war zones. So you, you know, you're not going to make currencies go away as long as there are governments. You're not going to make equities go away as long as there are companies. You won't make credit go away and you won't make art go away, right?

The debate right now is over inscriptions good or bad or NFTs good or bad. Well, you know, here's a, here's a story for you.

The last quest, the greatest artist in the Spanish court who painted the Spanish kings, he after a lifetime of service was spent on a, he was sent on a mission to Italy to acquire art for the king of Spain with the king of Spain's, you know, checkbook and it was a reward him.

So this is about 15, I know 1650. So he goes to Italy and he searches around and he can't find any art because nobody wants to sell it. All the good stuff is not available for sell, right? And the footnote in the history book is millionaires in, you know, post renaissance Italy, we're using art as a, as a hedge against inflation and a store of value.

That's 300 years ago, 400 years ago, hundreds of years people, you know, people have been doing this and at the same time there have been rigged art auctions.

You know, there, there have been, you know, art, the entire art business is its own insider game and people will establish one artist is being special and they'll be collectors and there's a massive debate about whether or not the artist's worth what it's worth.

Well, that debate's been going on for hundreds of years and today that debate goes on not just with art, but it goes on with, you know, luxury cars sports cars, it goes on with Rolex watches and luxury watches, it goes on with NFTs, it'll go on with inscriptions and ordnals.

It will just continue to go on and, you know, when I, when I hear that someone is a collector of like rare, whatever fill in the blank, I'm like, well, I would never buy that.

I got, I don't want to store my money in, you know, in someone's $500,000 sports car, but somebody does it, right? And, and, and it will continue.

So, if you think about this, again, New York, right, in the city of New York, you'll have the art and you'll have the businesses and you'll have the credit and you'll have the bankers and you'll have the politicians.

It'll always go on and what you're going to want is the granite not to shift.

And, and if you were the granite and you just looked up, you would say, all these silly human beings, you know, they're doing silly things.

I would never put a bakery there. I would never buy that piece of art. What are they thinking? And maybe be right, maybe be wrong, but it is the human condition.

And, and that's the market economy. So, if we actually humbly submit to the market economy and we say, we just want to protocol to allow humanity to pursue its million different aims with high frequency every minute, our day, week, year, decade, right?

Then, it kind of gives us a really nice framework for thinking about Bitcoin. And I think when I look at it, I just say, Bitcoin is a global, dynamic, cyber economy.

And we want it to be open, transparent, permissionless, timeless, immutable, fair. And Satoshi got pretty damn close with the first iteration. And you could say there are some second order tweaks to it over the next 15 years through the SegWit and Taproot.

But at this point, it feels to me like we've achieved that. And, and on the margin, there have been hundreds of attempts that failed. You could, you could almost argue, not hundreds, but thousands, tens of thousands or hundreds of thousands of attempts that have failed.

We have one that is succeeding. And it takes me, you know, to the, you know, to the next part of our discussion, which is, you know, under what circumstances should we entertain proposals to change the protocol?

Back to the show in a moment. The lead sponsor of this show is swan.com. You can use swan.com or the swan Bitcoin application on your smartphone to easily buy Bitcoin in a safe way. Now with swan.com, you can either buy Bitcoin using a smash by a chunk of Bitcoin or set up an automated recurring purchase plan. Now many people do a combination of both. They may take an initial position and then set up a regular automated recurring purchase plan, which helps them ride that through the market.

And that has been historically a good thing to save over the long term. Now swan also makes it easy for you to withdraw to your own self custody because swan has free automated withdrawals. And for those of you who are high net worth investors or individuals, swan private is a great solution for you.

Swan private will give you a concierge person who you can call up. You can get guidance and advice. You'll get access to special invite only events monthly research reports and just having that comfort of a person, an expert, a Bitcoin expert who can help you with your decisions on your Bitcoin allocation and other questions like this.

If you want to sign up go to swan.com slash Lavera. The show is also brought to you by coincard.com over at coincard you can find Bitcoin hardware devices that you can use to help secure your Bitcoin private keys.

So for example, the cold card or the tap sign are some great examples of hardware devices that you can use to help secure your coins. This is especially valuable if your storing amounts larger than what you would keep on a phone wallet as an example.

Now the cold card is a great device and you can use it easily by plugging it in with a USB-C cable and you can plug that into your desktop or your laptop and use that easily with software such as Sparrow wallet, Spector Desktop, Electrum, or if you want to use it with a phone wallet you can use it with non-chuck as an example.

The cold card is a very secure device. It has multiple secure elements. It has all kinds of paranoid security elements that you can employ as part of your Bitcoin security whether that is a duress pin, a pass phrase, or if you want to use your cold card as part of a multi-signature setup.

The cold card supports a range of options. Now I have cold cards in various setups. I use it in some in single signature mode. I have multi-signature mode. I have a various setups with that. I really enjoy using the cold card. It is very reliable and it is my hardware device of choice.

If you want to get yours, go to CoinCites.com and use CodeLevera for discount on your cold cards. Now back to the show.

I can agree with a lot of what you are saying there. The New York City analogy, this idea of a solid base that everybody can build up on top of. We can use it as our digital property, our store of value.

Some of these things will still exist. Obviously equity will still exist. There will still be debt and credit. Now maybe the form will be different. The artwork will still exist. But the form may change.

But there will be people who are doing this because they have done it for thousands of years before and they will do it for thousands of years into the future.

It might be useful to talk about the purpose of Bitcoin. I think that is where some of the disagreement lies. Now I think when it comes to the controversy of the day, the ordnals, inscriptions, BRC20 etc.

I think basically it is a matter of just weighted out. I am not interested in that stuff but I am not really trying to, because if you look at what some of the protocol developers are saying, they are saying fundamentally you can't stop people finding ways to hack and store data on the chain per se.

But they are paying a price for that and fundamentally they, I believe, will be out-competed over time with high-value monetary transactions. Now whether that is high-value people are trading for property or to sell business or to open and close the lightning channels.

All these kinds of things over time, those uses will get competed away. So bringing back to the conversation around how should we think about changes to the protocol. I think it comes back to what people see as the purpose of Bitcoin.

As an example, there is a big debate. This is one of those things where people look at the white paper and say, oh look, look at the white paper. It is Bitcoin, a peer-to-peer electronic cash system. Of course that is where some big blocker types say, oh see, you can't use it as cash anymore.

And then maybe somebody else might counter to that and say, well actually what we mean by cash is final settlement. And by that we are sort of something thinking closer to this idea of, as you said, digital property, digital money.

And so do you want to just spell out some of your ideas on Bitcoin principles as they relate to what the purpose of Bitcoin is and what sorts of changes if any should be considered?

Yeah, I mean, I think that you've got to start by saying Bitcoin's primary role is to serve as an economically sound, technically sound, ethically sound foundation for the future digital economy.

It is an essence sound digital property or sound digital money. I've described it as digital energy, but you can think of it as digital material. How do we manifest a hundred trillion dollars of real value in cyberspace?

How do we do that and make that stable? Before Bitcoin, all financial transactions in cyberspace are based on credit. There is no digital money. There is only digital credit in the world before Bitcoin.

I send you a billion dollars or a million dollars. It's a credit on Visa network or on a banking network. And if the, if the, the analog real world institution chooses to honor the credit, then the money changes hands. But, you know, we've talked about the problem with that before. Like I want to send a million dollars 40 times.

Every time I lose two and a half percent and it takes one month. And so it takes four years to move the money 40 times and I lose all the money. Right. And as since after 40 vibrations of the money, it's gone. So, so the world of credit money isn't, it isn't a foundation to build anything lasting or functional in cyberspace.

So, Bitcoin's primary role is to serve as a digital monetary foundation for the future of humanity. And if there's 900 trillion dollars worth of stuff circulating right now, 0.1 percent of that is digital money. As we understand it with Bitcoin, if we want to actually move into the 21st century into the cyber economy, you could imagine that we should be getting to hundreds, 200, 300, 500 trillion dollars worth of monetary value.

So, it's the foundation in the same way that the granite is the foundation of Manhattan. But it's not the applications. It's not the buildings. It's not the businesses. It's not the political systems.

And so, so to think it's that it's the currency is a mistake. It's it's not meant to replace equity. It's not meant to replace currency. It's not meant to be a medium of exchange. It's meant to be the underlying conservative foundation of the entire economy.

Now, that being the case, it's I think that, yeah, it's people that they they they live for digital currency. They just waste all their time chasing after the wrong thing and to be in the wrong thing.

Currency is not even that valuable. I mean, if if you look at the entire world economy and you ask what portion of the economy is in currency uses a medium of exchange, is that is that like one, two, three percent?

Like what percentage of the wealth of any wealthy person would be currency they use as a medium of exchange. You'd be lucky to see it 1 percent.

So, only 1 percent of the economy is anything related to currency just sort of to focus upon Bitcoin needing to be a currency to create value is missing 99 percent of the opportunity.

The the real value of Bitcoin is if I put the other 900 trillion dollars into the digital ecosystem, I could defeat inflation, which which is decimating 10 percent of all the wealth in the world every year. Right. That's a that's a big idea.

Or I can move the money a million times a second instead of one time a month. So, so what we're talking about is a high fidelity high frequency method.

The ability to move money based on a computer program a million times faster a million times cheaper and the ability to to manifest capital and digital form such that it lasts a million times longer right.

That's the breakthrough right a million times a million times a million right it's it's a lot better right it's and so I think that the purpose of Bitcoin is that it's to basically manifest the economy in digital space it's the digital transformation of capital.

If there's 900 trillion dollars of capital what if half of it could be transformed digitally and you move 450 trillion dollars into cyberspace and well you would say well why would I want to do that and answer is so it'll last forever that's it's it's immortal.

So it's indestructible check number two and so it moves at the speed of light check number three and so I can I can vibrate it at the speed of a computer.

So if the computer thinks a billion times faster than you and is a billion times smarter than you and I can move the capital a billion times faster and let the computer use it a billion times more intelligently and if it's indestructible and immortal then it's kind of the it's the difference between relying upon animal power and electrical power to drive the civilization forward right you can heat your home with a bunch of dots.

So you can heat your home with electricity clean electricity it's it's it's it's tricky to find powerful enough metaphors but but that's an example of a metaphor right electricity versus donkey power in order to move the human race forward.

That being the case then I guess with somebody makes a suggestion let's change the protocol I have a very simple checklist you know is it ethical.

You know is it good engineering and is it economically sound right so is it technically sound is it ethically sound is it economically sound and.

And I you know I think you know if we could start with an observation before I go too much further which is the heepocratic oath starts with the phrase do no harm right generally if you have a healthy healthy human being you want to start by doing no harm right and so here the principles I think apply with regard to Bitcoin it's already healthy network it's already gone from nothing to eight hundred fifty billion dollars in economic energy it's on a point.

To ten acts that in ten acts that again with no change to the protocol as far as I can see seems seems quite evident to me that we the next stop should be a hundred X where we are with all of the innovation taking place on layers two through five.

So when you come to me and you say I think there's a problem with Bitcoin right it's like I just heard about Bitcoin I'm here to fix it that's the meme everybody keeps coming up with this idea to fix Bitcoin they've all been wrong.

Generally so far and there'll be another hundred thousand you only get to play God once and Satoshi played God and you can say well Satoshi got to do it why can't I well the answer is Satoshi did it the reason we're talking about Satoshi is because the other hundred thousand would be Satoshi's failed if you read the history of the world work your way through ten thousand pages of Western history there will be thousands and thousands and thousands of people.

And thousands of episodes of alpha male thinks he was put on this earth you know to change everything full of hubris and decides that he's going to conquer his own country then he's got to conquer the next one then he's got to conquer everything in his way and then he's you know he's got to he's got to do more change more etc and that's the story of Julia Caesar.

That's the story of Alexander the great that's the story of genghis Khan that's the story of Napoleon right that's the story of Hitler that's the story of every king you know and most leaders I could give you ten thousand of them but.

William the conquerer but the story always ends the same way which is they start the underdog they get a few victories then their head gets too big for them then they decide to go.

Conquer the next thing and then pretty soon they're losing their entire army in Egypt or in Russia or wherever and you know and if they manage to conquer everything they die in the and the entire empire falls apart immediately like with Alexander the great.

Or they die and within one generation the empire falls apart which is what happened to genghis Khan or you know they end up with with no son so they murder everyone so they can have a son in their civil war or they end up with nineteen.

They have sons and the nineteen sons murder each other and there's a civil war or they have a hundred sons and one of them murders the first twenty and there's a hundred civil wars but at the end of the day it's always it's always an example of someone that thinks that God told them it's their manifest destiny to go and conquer something else and and there's this there's this basic stoic principle I think which is really important which is a.

It's it's you may be able to acquire the thing but it's ten times harder to maintain the thing and it's a hundred times harder to prosper or enjoy the thing so in business that means you can buy the you can buy the business or launch the product can you make a profit probably not but if you can make a profit can you actually continuously grow the business forever such that you can compete for the next hundred years and prosper that's a hundred times harder so.

The world is full of people that think that they can start a business but ninety nine percent of the time they fail because they underestimate the cost to compete and the cost of prosper the world's full of people that.

That they thought they could acquire that thing but they can't afford to maintain it and then they acquire too much and they realize it is dilutive and they can't enjoy the things they've acquired and history is riddled with examples of empires where Empire builders they they over extend and then they realize.

that they can't maintain the empire.

It all collapses in a catastrophe.

And it's highly predictable.

It always happens.

If I were to give you 100 examples,

I would have only given 1% of the examples

because it just happens over and over and over and over again.

So when you think about all this, be where men with God

complexes.

You only get to play God once.

And most medicine and most law is Iatrogenic.

It's kind of amusing.

There's so many examples in history

where the historian studies history.

And this has been said in 500 BC, in 100 AD, in 700 AD,

in 1280 and 1500 AD, modern time.

But that basically what's said is doctors

multiply the ailments with their cures

and the lawyers multiply the disagreements with their laws.

The doctors want to prescribe and operate.

The lawyers want to legislate and litigate.

That's what they do.

And so when you think about Bitcoin's protocol,

Bitcoin core developers, or protocol developers,

they want to fix something or they want to make a contribution

because it's in their DNA.

But developers are just the lawyers of cyberspace.

When the lawyer shows up at the Capitol,

they've got to make a law to save you from yourself.

And the more laws they make, the more they cripple the economy.

And until eventually, there's so many laws

that the entire civilization collapses under its own weight.

And when developers show up and they're invited to a pino

in the protocol, they want to actually introduce

piece of code to make it better.

And it's always well, I can speculate a circumstance

under which we might need this.

Or I can speculate, we don't do this, we're going to have a failure.

But in the history of mankind, people that preach Doomsday

that predicted the end of humanity,

they have a 100% failure rate.

And yet, every single demagogue, every politician,

every empire builder has always preached this.

I got to start my own religion because you're all going to hell.

And the world's going to end.

And it's happened to say hundreds of times understatement,

hundreds of thousands of times, most likely.

It's just that we only managed to record

about 10 or 20,000 of the incidences.

But it's happened as many times as there are leaders born

and it's continually happening.

So, I mean, you have a proposal, whatever it is,

my first start is, if it's not a global consensus

to be a fatal defect, and if we all universally think

it's a fatal defect, it's going to destroy the network,

then I think we should carefully consider it.

I'm not saying we should, we could all be wrong, by the way.

Every time, every civilization is concluded

that the end is near, they've always been wrong, right?

And the history of the world, they've always been wrong.

So, if there was universal consensus of a fatal defect

that's going to destroy us all, we simply

ought to talk about it.

And maybe, maybe we should do something,

but it doesn't mean we should do something,

we should really think hard about it.

When I look at as an engineer,

and I spend my career in engineering, Stefan,

like for 30 years, I ran a software company.

So, thousands and thousands of man-years of engineering.

Conclusion, code is a liability, not an asset.

Just like laws are a liability, not an asset, right?

The president of Argentina is looking

to repeal 380,000 different rules, right?

So, complexity in the protocol creates new attack surfaces.

Every time you introduce a new, a new piece of code

is an attack surface, it's something to break.

Given the fact that we're already winning,

and we're in a path to winning,

and this is where you're an optimist, you're pessimist.

For example, do you think the universe is going to work

with it without human beings?

If the universe is going to go on for another billion years,

then who needs you to f with the laws of physics?

It's going to work fine without you, right?

So, you have your little God complex,

but probably you'll be wrong, the universe will be right.

So, if you actually have some respect for natural law,

and if you have respect for Bitcoin and network,

if you think it's already working,

then every piece of complexity introduces a way

for it to break.

Every complexity is a new failure mode,

a new attack surface, a new maintenance obligation.

I created a new piece of code.

Okay, well, now we have to test it

against every other piece of code,

every time we update any piece of the software.

Okay, so 100,000 different permutations of things

to worry about testing,

and if one of them breaks were doomed,

and on the other hand,

what's the usefulness of the new feature, right?

That a new feature encourages feature competition.

So, every time you add a new feature,

you encourage someone else to propose their feature,

and then you create confusion.

It's like, okay, well, there's a new feature,

so now everybody in the world has to figure out

how that affects everything that they've done

or everything they're gonna do.

And that creates an arms race or a feature race,

and that creates uncertainty, and that undermines trust.

And ultimately, all of the confusion, uncertainty,

and undermining of the trust,

undermines the efficiency of everybody else in the ecosystem.

So, all the layer two, layer three, layer four,

layer five, and layer six, let me say it this way.

I'm playing God, and I'm just going to routinely zap

four acres of granite in New York City in the next 10 years,

and I'll wipe them out, and put a sinkhole underneath

that goes down to the center of the earth,

because I feel like I need to do that to save the world.

And you live in New York, and you run a business in New York,

and you're the mayor of New York.

You see the chaos that creates,

it's like, do I have to pass a law

to inspect every acre of New York,

every month for the next forever,

to figure out whether school kids will drop into the sinkhole?

It's like, yeah, you think you're doing good.

It's like, well, I speculate that global warming

will end the world, and so I got to do this.

It's like my speculation, so please let me do it.

But what you're doing is creating an obscene amount

of inefficiency in the rest of the economy,

that you're, we call this strategic incompetence.

You're a blissfully ignorant,

and you're so incompetent that you can't imagine

what kind of chaos you will create

for all the other people, not in the room with you right now.

And that's what gives you the confidence

to go and mess with the world, right?

Because you've got that big an ego.

And I think if you have humility,

and you say, well, I know one human being worth of stuff,

and there's a hundred million other human beings

that are affected, and maybe I don't know the other 99 point

99 million human beings worth of stuff,

then you would go much more carefully

from an engineering point of view.

The model I would give you here too

is the 737 MAX.

Are you familiar with the 737 MAX

and the debacle that introduced?

Yeah, I heard of this story,

but that gone for those who's in this.

So I'm an aeronautical engineer,

and so I know something about building aircraft,

and the short of it is aeronautical engineering

is a systems discipline.

So when you change the payload of the aircraft

and you change the wing of the aircraft

or the fuselage of the aircraft

or the mission of the aircraft

or the specs of the aircraft

or the furniture in the aircraft

or the electronics in the aircraft,

you have to consider whether or not you broken anything.

And you could introduce a new couch

and destabilize the aircraft

under certain circumstances

and crash the thing and kill everybody,

which is why you're careful about playing God

on the aircraft.

It's not like shuffling the furniture in your living room.

The 737 was designed in the 1960s.

It's one of the most successful aircraft designs

in the history of the world.

We were flying it in the 70s,

we flew in the 80s, the 90s.

We, for 50 years, we flew this aircraft

and we made incremental adjustments to the airframe.

We stretched it a little bit longer

but we didn't change the shape of the fuselage

and we kept most of the components

and it was very successful

and it was flown by pilots very successfully.

And then along comes some well-to-do, well-meaning engineers

that want to fix it or make it better.

It wasn't broken.

It's the most successful airliner in the history of the world

but someone always wants to make it better.

Probably someone that graduated from computer science program

and they learned about new techniques

and so they decided to upgrade the control systems

and the autopilot system in the aircraft, in the cockpit.

We have to migrate to electronic cockpit.

And so when they did it, they introduced code into the auto throttles

and into the control system.

There was supposed to be a fail safe

to keep the plane from crashing.

So it overrode the pilot under certain circumstances

and they introduced a bug into the code

and the way that the software interacted with the sensors

on the aircraft in a systemic fashion

was such that under certain circumstances,

the software took over control of the cockpit

and stalled out the airplane and crashed it and killed everybody.

And it just kept happening.

And if you're the pilot in the airplane,

you get murdered by the software

and the software kills you and kills all the passengers

and they were killed by the upgrade.

And so as an example of if they had done nothing,

we'd all be better off.

And it was a massive hubris

because there's this arrogance of thinking

that no matter what I do, I won't make things worse

and I can introduce as much complexity as I want.

And the answer is no, you can't.

You can't introduce much complexity, right?

Since you're not God and you don't understand

all circumstances and all parts of the functional envelope,

you can't possibly see the full implications.

But what we do know is a bunch of very enthusiastic engineers

made an upgrade to actually make the plane unsafe.

And you always have to be concerned about that.

And there tends to be lots of examples of that

and the world is happening all the time.

Yeah, so at one point, I just want to bring up here

just to get your response on this

because there is certainly,

and I'm sure you recognize this also,

a role for maintenance, right?

There's always a need for maintenance.

Bitcoin itself doesn't exist in a vacuum,

right? It has to connect to the internet.

And there are other aspects of code or applications

that Bitcoin has to connect with.

So I presume then, you would contrast that

from the role for maintenance of the protocol

so that people can still use Bitcoin, wouldn't you?

Yeah, I think that one way to think about this

is there's a kernel.

Like if you look at the database industry,

like there is the kernel,

the relational database kernel Oracle,

and Oracle was ported to lots of different computer platforms.

And so there would be the version of Oracle

and a mainframe and the version of Oracle

on an IBM PC and the version of Oracle

on an Apple computer and the version of Oracle

that might run on a mobile handset or an Android phone.

But the kernel stays the same

and the way it processes SQL

and the way that the engine works,

the protocol doesn't change.

The ports are various instances, right?

It might very well be that they have different functionality

and they have to be maintained and upgraded

with the operating systems as they change.

And there's a role for that.

But good software engineering is such

that you would always want to have a situation

where if the system crashes, it crashes on the client

but it doesn't corrupt the data or corrupt the network.

So you don't want a client anywhere on the network

that would corrupt the network or corrupt the underlying data.

And so there's a question of how does it crash?

How does it fail?

Does it fail gracefully?

Or does it fail in such a way that it corrupts all of the data?

Or the worst case would be it crashes

and it crashes other people's devices as well.

So I think that there is a lot of software engineering

to be done around Bitcoin.

I mean, the engineering of the signing devices,

the engineering of the node clients,

the engineering of the mining rigs,

the engineering of the mining pools, right?

The engineering of the layer two of the wallets,

the engineering of the layer three apps

and the engineering of lightning channels.

These are all parts of the ecosystem.

But I would say philosophically,

you want the majority of risk to sit with the client.

You want the risk on the edge of the network.

You want the risk to be ideally with the application

and the corporation, right?

Like if you're a custodian, you're going to lose something.

You want the corporation to be on the hook for it.

If you're going to destroy an entity,

you want to destroy the company or the individual

or the client device or the individual miner.

You don't want a fatality of the network, right?

We can't afford to have the protocol corrupted, right?

That's kind of like if you're screwing with stuff

in your factory, you're not allowed to use

planet-busting nuclear fusion weapons

because if you mess that up, you blow up the planet, right?

Don't let people burn down the entire city.

Don't let them burn down the entire network

with regard to everything else.

Bitcoin can survive the failure of any layer three

application or custodial application.

It can survive the failure of any holder

and it can survive the failure even

of a layer two protocol, a lightning protocol.

The entire protocol could fail.

Bitcoin will survive, right?

And it can survive the failure of a lightning channel, right?

So there are a lot of components that it can survive.

Just like New York City can survive the collapse

of any building, any business, any government,

any mayor, any administration, and any culture.

But it can't survive 100 thermonuclear warheads

that plow a one-mile crater

over all of Manhattan such that the ocean covers it, right?

And swallow us head.

You don't want to Atlantis situation

where the entire thing sinks under the Atlantic.

So you got to consider the risk.

And I think that there's no point in trying to get involved

in all of the software engineering

of the layers above the foundation

because they're all high frequency, high complexity.

My general view is if you're a brilliant engineer,

if you're the Mark Zuckerberg type

and you want to create something that you think

is worth hundreds of billions of dollars,

create it as an application on Bitcoin

and go take it public and raise capital

and market it to the world

and maybe just create it the next Facebook

or create the next Microsoft.

And maybe if you're right and if you're wrong,

your investors will go bankrupt

and your code will be scrubbed off the network in time.

History shows that 99.99% of the time you're wrong, right?

There's only like a dozen people

that were ever like Mark Zuckerberg

and there was a million people that wanted to be.

So history suggests you'll probably be wrong,

but everybody has their right to take their shot

and you should go ahead and risk your time, your capital,

your code.

And if you're successful, maybe your cash app

and you'll have 50 million users on the network

and you get to control how those 50 million people

interact with Bitcoin, right?

And maybe you'll have 500 million people on the network.

Maybe you'll be Microsoft and you'll have

a billion people on the network

and you'll get to control how your billion customers

interact with Bitcoin and maybe you'll have a trillion dollars

of Bitcoin in the network.

And that's okay, but at the end of the day,

you're going to be an attack surface.

You're going to be a corporation.

You'll be subject to a subpoena.

You'll be centralized and maybe you'll be successful

in the US, but maybe you'll be like Apple.

I mean, think about the problems that Apple, Google,

and Facebook have in China right now, right?

They all have very much political headaches.

So all of these layer threes are going to have political headaches,

but you can't be little the ability to do good.

The truth is Microsoft and Apple and Google

have accomplished things in their own way

that you could never accomplish with an open protocol

or with a layer one protocol.

And so it's silly to try to do what they do in layer three

in the layer one, but it's silly for them

to not take advantage of the layer one.

So that's what I think about general maintenance

of different types.

One other area that I think some people may be interested

to hear your view here when we're talking about engineering,

what of things like non-consensus changes, right?

So for example, the big ticket things

that people talk about are typically the soft forks, right?

So segwit, taproot, and so on.

But there are a whole host of other changes

that are just happening as an example

with new releases of Bitcoin core.

So for an example, the V2 transport protocol

or other things that are changing as we speak, right?

Every six months there's a new, on average,

there's a new release.

And so some of these changes are already occurring.

So what are you saying in respect to those changes

that are not these kind of big headline soft forks

or consensus changes?

Well, I think the core protocol, the monetary protocol,

the transaction protocol, the power protocol,

the thing that's the essence of Bitcoin,

that needs to be defended in a very conservative fashion

as the foundation of the entire Bitcoin economy.

I think that when you look beyond it

at various extensions of those protocols

that are optional, right?

Soft forks, if you will, maybe backward compatible extensions

that may or may not be adopted.

I think that people can pursue whatever they want to pursue

and the market will decide.

For example, if you came up with a Bitcoin

that ran on an iPhone, what I downloaded,

might you add some iPhone features?

Would it be successful?

Would it not be successful?

People have different opinions about it.

Maybe it's a good idea.

Maybe it's not a good idea.

I mean, people will make arguments about why

it shouldn't be part of the Apple store,

something to Apple approval.

And someone also say, why don't we just let it go?

I think everybody's free to come up with their own software.

It's either a layer two.

I'll characterize layer two as it's consistent

with the core protocol of Bitcoin,

the layer one protocol, the foundational protocol,

but it's optional and it's open source.

That's like lightning.

It could be 100 flavors of lightning.

And there's Bitcoin core,

but people can create 100 competitors

that are different ports to run on different devices.

My version has a different way to sync,

and it syncs in one minute on your Android phone,

or it syncs.

And it runs differently and people will debate it.

They can debate it or not.

And maybe it'll evolve.

Maybe it won't evolve.

I think that as long as it's not screwing

with the power protocol, the monetary protocol,

the transaction protocol, then probably the market

will work it out.

And I think many of them morph into a layer three

because there's a custodian or there's a company

or a group of people, a centralized group, most will,

because if you want to do something

which has got a lot of rich functionality

or rich performance or anything different,

any other bells and whistles,

if you want to add usability,

if you want to add compatibility,

if you want to add compliance,

you're going to have to have generally

an organized software engineering team to do it.

I think that's obvious we need those, right?

If you want to run Bitcoin in a certain regulatory environment

and the politicians there say you have to comply

with this rule or else it's illegal,

then someone will pop up to build that kind of compliance

software and that'll be a company.

And it's almost certain that the company that does that

won't be compliant in other jurisdictions.

And so I think that that's just part of the vibrant economy,

like a vibrant Bitcoin economy.

And many, many ideas will be tried.

And some of them will be great ideas,

but not economically viable.

And some will be great ideas,

but will be smashed by regulators.

And some will be great ideas,

but people just won't care.

You live long enough and you invent,

I've said this before, it's like,

I invented a hundred things,

not many of them were commercially successful.

It's easy to create the mobile app on the iPhone

that happened a hundred thousand times.

But you can count on two hands,

the number of mobile apps that got to a billion users

on an iPhone.

So there should be a vibrant economy

and people should be always trying new things.

And the real issue is,

is it an open layer two type protocol,

or is it layer three,

or is it something different entirely?

I tend to think every time an engineer has a good idea

and they say, well, Bitcoin really needs this,

I think, well, why don't you implement it

in your version of Bitcoin,

or in some kind of layer two fashion,

implement a special lightning node

that has that functionality.

And let's see whether or not a hundred million people

adopt it because they like it there.

And then after a hundred million people use it,

maybe they'll be a view that it ought to be put back

into the core base protocol because it's useful.

And then on the other hand,

maybe a hundred million people will use it.

And we'll conclude,

we don't need to put it in the base protocol

because it's already been successful, right?

Why would you risk the genetic code

of the entire human race, right?

When you don't need to?

So I guess, and coming back to this subject

of just my filters, like the first thing I always think is,

well, what kind of engineering risk does this implement?

And given the fact that Bitcoin,

I'm up to view that Bitcoin is already going

to be a hundred X more successful than it is,

you've got to show me something that makes it

a million times better that has no risk

before it becomes interesting on my radar.

Otherwise, I just think 737 Max, you know,

it's like, you know, a great idea.

Lots of people are dead and you set back,

you nearly bankrupted the entire company,

lost 20, 30, 40 billion dollars trying to do good

and you killed a lot innocent people.

So good for you, right?

Maybe we don't need to do that.

I'm, I also look at,

I think the economic constraints are really important.

When you introduce new functionality

and the base protocol, you undermine

and impair all the application development

on the above layers.

So you're, you know, you're robbing the rest

of the economy of the opportunity to do it

in a layer two or a layer three or a layer four

because you want to shove it into layer one.

So whatever your good idea was,

why don't you start a company to do it and make billions?

And if you're going to rob me of the ability

to start a company and make billions,

then how are you helping me?

It's, it's an example of a government

that once they insert wage controls and price controls

and nationalize every major part of the economy.

It's like, like when the, you know,

when the Westerners go to Africa

and we give away free medical care

and we bankrupt all the African doctors

and the African hospitals.

So like destroying the native farmers in Africa

and destroying the native doctors in Africa

because we want to give away food

and give away medical care.

And we think somehow that we're morally superior

but what we really did was we wrecked the economy.

And so I think you got to, you got to be saying,

am I going to wreck the economy of the rest of the layers

by trying to introduce this in this base layer?

I think performance undermines transaction fees

and application development.

So, so, you know, when you're introducing

performance improvements in the base protocol,

you're stealing from the miners

and when you're introducing functionality

improvements to the base protocol,

you're stealing from the application developers.

You're, you know, you're destroying their business,

either you're stealing, you're destroying

or stealing their existing property

or you're stealing their future cash flows.

On this point, I think there's maybe some people may disagree

on this point just, and some of this has parallels

even with the block size wars

because there was this kind of idea of,

oh, let's get segwit because we're going to get lightning

and then there was this kind of question of,

oh, but are the miners losing out

because now they're going to lose out on transaction fees

in this example?

And so there was a phrase, some fighting about that

and some people were coming back with the argument

of, oh, well, see, we're growing the overall ecosystem,

the overall number of people who are going to be doing

even lightning channel open and closed transactions

on the base layer, such that the miners are not going

to lose out.

But are the people saying, no, you're taking from the miners?

It's, you know, the famous saying from one individual,

Gihon Wu, was that the transaction fees would be

quite, unquote, unfairly cheap.

So that's perhaps an example of this kind of conflict

that can arise when there are upgrades to Bitcoin.

Yeah, I think, if you look back at wars,

a lot of evil is done in wars on both sides

and a lot of innocent people were hurt.

And that's the case of every war,

the 30 year war, the civil war, every single war.

Right, so in the block size wars,

a lot of people were hurt by the war.

Now, I would start with my observation

that we're here right now, the war has been fought.

I mean, I can't undo what happened.

I don't condone warfare.

There are a lot of Bitcoin miners that are bankrupt today

because of segway and the transaction fees did go

through the floor and they would have been higher

if the block space had been more scarce.

And so, you can say the network survived

and we are where we are.

And I think that Bitcoin with Taproot

and Bitcoin with Segment is a healthy network

and we have enough functionality to 100 extra here.

But I do think every, if you look forward,

I mean, looking backwards, people were hurt, right?

And in the German civil war, right,

in the 30 years war, like one third of the people got murdered.

Okay, there's no, you know, there's no good guys.

There wasn't a good side, right?

Both sides murdered millions of innocent people in the war.

Every war is like that.

Every single war in human history.

The winners, murder a bunch innocent people,

the losers, murdered a bunch innocent people, war is hell.

And so one should hope, maybe I'll say it a different way.

If you didn't have to have a civil war

and if you could grow, if you could,

if you were in charge of a nation and you were the choice,

shall we engage in a civil war

or shall we live peacefully together with the status quo?

I think the answer is we should live peacefully together

with the status quo.

And every time a strong willed leader comes along and says,

God told me that the status quo will result in all of us

plunging to hell on the end of the earth.

And therefore I have to murder 25% of the population.

It's like the Catholics versus the Huguenots in France.

Like they started a war,

rent for like 35 or 40 years with Catholics

murdering the Huguenots and the Huguenots

murdering the Catholics who wasn't good for France.

And eventually the leaders that we like better

were the leaders that after the Edic of Nantes said,

okay, well, Calvinists and Huguenots and Catholics

are both allowed to live in the country

without us murdering each other.

So if I look forward,

I don't have a lot of patience

or I don't have a lot of sympathy for a developer

that thinks we should have a civil war

and destroy the property rights,

economically murder the miners

or economically murder an application developer

or economically murder a Bitcoin holder

just because they think God told them

that the world would be better if they got their way.

That's an example of radical fundamentalism

where a minority wants to plunge the entire nation

to a civil war just to get their way

because they think God told them they're right

and they're appointed.

And I think economically,

if you're proposing to basically put functionality

in the base layer,

then you're robbing,

you're impairing the assets

and robbing the application layers above you.

And if you're proposing to expand the transaction bandwidth,

you're robbing the Bitcoin miners

and you're stealing their property from them,

without due process.

And all the upgrades that are proposed to the base layer,

they're imposing a cost on all the network participants,

a cost on the miners, a cost on the node runners,

a cost on the application in order to stay compliant

in order to avoid being at a disadvantage.

So when you write code for the base layer,

you're just a lawyer showing up at the Capitol,

writing a new law.

And the law is daylight savings time.

We've decided that people shouldn't work

after four o'clock in the afternoon

because there are shadows on the trees

and we don't think people should be able to do it.

And if you do it, we're putting you in jail.

And I'm doing it because God told me

that we can't have people working

when there are shadows on the trees, right?

Or you know, fill in the blank, right?

There are a hundred thousand of those laws.

Some person with some moral or philosophical

or religious argument makes it.

And then they write a law on the books

and the law is a restraint of trade.

And the result is someone has their property rights

devalued, right?

And someone else benefits, right?

I get rich because you have to use windmills

and you can't use nuclear power.

And it's like the dude that doesn't have

the nuclear power plant gets rich

and the person that owns the power plant gets poorer

and I did it to save humanity with the law.

And I think that there's always gonna be

a never ending supply of them.

The more of them you entertain,

if one developer gets their way,

the next one will wanna have their way.

And then you introduce this moral hazard

because now an economic actor decides

that it's in their best centers to campaign

for a change in the protocol that will help their business

or help their interest.

Either they wanna be famous or they wanna be rich

or they wanna be powerful.

And if I knew that I could show up in the capital

and pay somebody $5,000 to get a law pass

making it illegal to bake bread within city limits

unless your last name is sailor.

Then I would do that, right?

I mean, the entire history of economic chaos

is monopolies handed out by authoritarians

to their cronies always justified

for the good of the people, right?

And any code change to the protocol

is some kind of benefit to one class

to the detriment of everybody else in the world

and everybody that's ever gonna come in the future.

So from now to the end of time,

every human being that's ever gonna live

is gonna be impaired by some constraint

that's introduced by some enthusiastic,

political actor that thinks that they were, you know,

given a mission from God to make the network better.

And generally, they're not right.

Yeah, and so one other area I think people wanna hear

your answer on is what about in the case of upgrades

that are opt in only?

So as an example, if it was a particular, you know,

opcode that an existing node run

that doesn't have to care about.

And it's only, if it could be,

let's say for the sake of argument,

it could be shown that there's no impact to existing users.

You can just keep using Bitcoin exactly as it is,

but there's this new opt-in opcode as an example

that people can opt into and only use that if they choose to.

What's your, do you have any view on that kind of idea?

I generally think that if it's marketed

as an application by a corporation,

like when Block wants to create cash app functionality

and build it into cash app and people get it

and it's otherwise compatible with the rest of network,

then I think that there's not a lot of moral hazard there.

But I think that when you get to the point

where you have two warring camps

with two different versions of a Bitcoin node

and one of them has different functionality

than the other ones, right?

Now you're entering into a religious war

and if they're incompatible, who knows?

If one is a superset of the other one, right?

I probably, if it's a superset of the other one,

it's probably less of a hazard when it becomes,

when it introduces something which is incompatible

because more of a hazard.

I hesitate to give you a black and white answer

because I'd have to see it,

but I do think it's a slippery slope

and as a general rule, developers ought to focus,

like don't f with the network.

Like I just generally think people shouldn't screw

with the network and they shouldn't screw

with the core protocol, it works fine.

If you want to introduce a thousand new ideas,

introduce them in lightning and create, for example,

I don't have a problem of creating your own implementation

of lightning which is a superset of somebody else's

implementation of lightning.

So I think you can create different implementations

of things that layer two and layer three.

Creating different Bitcoin nodes

with different functionality.

I mean, obviously I don't really have a big concern

about usability upgrades.

If you want to create a graphical user interface

on top of Bitcoin, which is animated and beautiful,

I mean, that doesn't represent so much risk.

I think that when you're introducing changes

to the underlying monetary protocol

or transaction protocol, if you introduce something

which changes transactional bandwidth,

which would have an impact on Bitcoin transaction fees,

I think that that's a problem.

Anything that if you change the transaction bandwidth,

then you're stealing, you're robbing the miners of cash flow.

And if you're stealing revenues from the miners,

you're putting the mining network at risk over the long term.

And that puts the power at risk.

So you're changing the power dynamics.

And that puts the stability of the entire network

over the course of the long term at risk.

So I think I'm fairly conservative.

I'm not in favor of anybody deciding who can own Bitcoin.

I don't think you should muck with the asset

with the monetary protocol.

I don't think you should muck with the transaction protocol.

I don't think you should muck with the power protocol.

It works fine.

Why break it?

If it's not broke, don't break it.

You could break it and plunge the entire world

into 1,000 years of the dark ages.

Good for you.

What's worth that?

What's worth taking the risk of that?

So I would tend to be very conservative

with regard to anything that affects the balance of power

between the asset and the transaction

bandwidth and the power scarcity.

But just like someone would say, well, I think we should

change Shaw 256 to Shaw 512.

OK, great.

So you invalidate all the technology

that every Shaw 256 Bitcoin equipment manufacturers

developed over the last decade.

And then you introduce your own little piece of equipment.

And you basically obliterate or nuke $25 billion

worth of capital investment by miners.

You can see why it doesn't make a lot of sense.

It's like all those things represent moral hazard.

And they create dysfunctional political incentive.

Do you really want people to be continually

campaigning to confuse Bitcoin operators?

Why would you want to create a market

in introducing fear, uncertainty, doubt,

and confusion into the base layer?

Like we're back to this issue of, let's

take the New York model again.

You have 10 acres of granite.

And you ask me, Mike, is it OK if I like put radioactive charges

under my 10 acres of granite that will just kill anybody

that wants to plan a palm tree for all of eternity?

I'm like, I don't think you should mess with the granite.

Like what if I want to put an easement on the property

for all of eternity that makes it impossible

to use it for residential housing?

I don't think you should do that, right?

I think it's granite.

If you're going to actually build a funky building,

that's OK.

We can tear down the building.

But I don't think you should write checks you can't cash.

So don't build things that would potentially

impair, destroy, or change the nature of a Bitcoin

between now and 10,000 years from now, once you're dead

and once your company's dead.

Once you're gone, don't mess with the network, right?

Leave the fundamentals alone.

And it's kind of simple.

It's like, when it do comes to a Manhattan,

and the guy says, hey, I have this idea.

I'm going to set off a thermonuclear warhead,

but it's only going to go off for 20 blocks in every direction

and I own the blocks.

Don't you think you're just like, hey, just stop it?

You don't need to be messing with that.

We don't need that kind of behavior.

It's like, I don't care how smart you are.

You just don't need to be messing with the quiet enjoyment

of everybody else in the city.

Just leave the 21 million blocks alone.

And again, it's like, the moral has it is,

if you encourage people to do this,

then you'll have 10,000 people lined up to do it.

Then you're going to have 10,000 companies

that will basically invest a million dollars each

to try to change the protocol.

And now you're just going to have war, right?

And you don't really want that kind of war

at the protocol level because I guess fundamentally,

the issue is there's nothing wrong

with building a city on a bunch of granite blocks, right?

There's nothing wrong with it.

And you've got plenty of room to innovate

on layer two, layer three, layer four,

layer five and layer six.

And what happens to Bitcoin when all of us

spend all of our time debating

a hundred different Bitcoin improvement proposals

and each one requires a thousand hours.

So now you've introduced like hundreds of thousands

of hours of debate.

Can you think of an example where that happens?

It's like, yeah, the modern political systems, right?

We're pretty soon 20% of all the citizens

in the country are lawyers fighting with each other.

And I'm reminded of, is it Aristophanes and his play

where he says, first thing we do is we kill all the lawyers.

Right?

Might've been Shakespeare too, but who knows?

It's like, at some point, you know,

the question really is, if you have the ability

to create code, why don't you create code on the network

and not try to change the network?

Right?

It's much more constructive channeling of human endeavor.

Yeah, so I guess we've covered

then the Bitcoin principles aspect.

Is there anything around Bitcoin dynamics

that you'd like to discuss?

Yeah, yeah, I mean, I think it's worthwhile

to touch on that, right?